- Application: the higher rates of SDLT do not apply to non-residential or mixed-use properties or where the consideration paid for a residential property is less than £40k. The higher rates of SDLT are also not charged on acquisitions of high value dwellings which are already subject to the 15% rate of SDLT payable by ‘non-natural’ persons (e.g. a corporate purchaser). For further details please read our article 'SDLT: 15% rate on enveloping high-value residential properties'.
- Individuals: the higher rates are payable if an individual already owns another residential property worth more than £40k (wherever situated) unless the new property will be used as a main residence and replaces a previous main residence that has been sold.
- Married couples, civil partners and joint purchasers: HMRC will usually treat a married couple, civil partners and joint purchasers as a single unit when applying the higher rate rules. This means that one person may have to pay the higher rates of SDLT even if they do not own another residential property. The rules treating married couple or civil partners as a single unit will not apply where a couple are legally separated or separated in circumstances where the separation is likely to be permanent. This was a welcome relaxation of the original position and was a change that we promoted in our response to the original consultation back in January 2016.
- Company or collective investment scheme: notwithstanding our comments about the maximum rate of SDLT payable by a corporate entity, the additional rate is payable if a company or collective investment scheme acquires a residential property. This is regardless of whether this is a first or subsequent purchase by that vehicle!
- Trusts: if the trust is a bare trust, the beneficiary is treated as the owner of the underlying residential property and the rules apply as if the beneficiary had acquired in their own name. This is also the case if the trust is an interest in possession or life interest trust. However, if the trust is, for example, a discretionary trust, the acquisition of a residential property by the trust attracts the higher rates of SDLT whether or not the trust already holds residential property. Please note that the rules differ where properties are held on trust absolutely for minor children and this is discussed in greater detail below.
- Bare trusts and children: the usual position is that the beneficial owner under a bare trust is treated as owning the property interest. However, where the beneficiary is a minor child the child’s beneficial ownership is allocated to its parents (and, if they are not married to one another, the spouses or civil partners of those parents). This may have surprising consequences for the unwary.
- Delay following sale of previous main residence and purchase of new one: the higher rate should not apply when an individual (including one who owns more than one property) sells their main residence and acquires another. However, the new main residence must be acquired within 36 months of the disposal of the original main residence and the old main residence must have been used as a main residence at some time in that three year period (although the time limit is relaxed for purchases of main residences on or before 26 November 2018).
- Purchase of a new main residence prior to the sale of the old main residence: an individual will have to pay the additional 3% rate if they acquire a new main residence unless they simultaneously dispose of their existing one. However, if they subsequently sell their old main residence within 36 months of the acquisition of the new main residence, the individual will be able to apply for a refund of the additional SDLT initially paid. Any claim for repayment must be made within three months of the disposal (in most cases) so sellers should seek to deal with the claim promptly.
- Purchase of multiple dwellings: if an individual purchases two or more dwellings in a single transaction, the entire purchase will either be subject to the higher rates of SDLT or not. There is no mechanism to treat the properties separately. For example, if an individual acquired two flats as part of a single transaction, one to be used as a main residence and the other to be rented, the higher rates would apply to the entire consideration paid. Purchasers of houses that include “granny annexes” may also be caught by these rules because, depending on the facts, the annex may be treated as a separate dwelling for SDLT purposes. Please note that in many cases a subsidiary property (such as a granny annex) and the main house may, together, be treated as a single dwelling provided that the main property is worth at least two thirds of the overall transaction value. This will require an analysis of the position and, potentially, a valuation. In addition, multiple dwellings relief may be available to mitigate the additional cost to a certain extent.
- Inherited property: where an individual inherits a 50% or smaller interest in a residential property (taking into account any interest held by a spouse or civil partner in the same property), the interest in that property is ignored for the purposes of the additional 3% SDLT rate for three years from the date on which the individual becomes entitled to the interest in the inherited property.
- Large scale investors: there is no exemption from the new additional charge designed to benefit large scale investments in residential property. This was a major surprise as the Government had previously indicated that some form of relief would be available. This change in policy followed criticism from smaller investors that an exemption for larger investors would distort the market. Investors acquiring six or more residential properties as part of a single transaction can still rely on the existing provisions that allow the taxpayer to treat such purchases as non-residential and pay non-residential rates of SDLT (please see Table 2). In addition, purchasers of more than one dwelling (in a single transaction) may be able to take advantage of multiple dwellings relief to mitigate the impact of the higher rates. Taxpayers will have to consider the various options based on their actual situation when deciding which option is the most tax efficient.
|Residential rates of SDLT
|Up to £125k
|Next £125k (portion from £125,001 to £250k)
|Next £675k (portion from £250,001 to £925k)
|Next £875k (portion from £925,001 to £1.5m)
|Remaining amount (portion above £150k)
|Non-Residential (Commercial and mixed use)
|Up to £150k
|Next £100k (portion from £150,001 to £250k)
|Remaining amount (portion above £250k)
The content of this article is for general information purposes only. For further information regarding the Annual Tax on Enveloped Dwellings, please contact Karl Pocock on 01603 756544 or [email protected]. Law covered as at November 2017.